Oceaneering International, Inc.

Q2 2021 Earnings Conference Call


spk_0: the morning and name and juliet and i will be your conference operator our like to welcome everyone to the oceaneering second quarter twenty twenty one earnings call our lives have been placed on new to prevent any background noise after the speakers remarks that will be a question and answer period but that i went out on the call over to miss the mark peterson oceaneering vice president of corporate development and investor relations a bigot
spk_1: the think it really good morning and welcome to oceaneering second quarter twenty twenty one results conference call today's goal is being webcast and a replay will be available on ocean or website joining us on a call today are rod larson president and chief executive officer who will be providing are prepared comments and allen curtis senior vice president and chief financial officer before we begin our just like to remind participants that statements we make during the course of this call regarding our future financial performance business strategy plans for future operations in industry conditions are forward looking statements made pursuant to the safe harbor provisions of the private securities litigation reform act of nineteen ninety five or comments today also include non gap financial measures additional details and reconciliations to them most directly comparable gap financial measures can be found in our second quarter press release we walk in your questions after the prepared statements i will now turn the color to rod
spk_2: benchmark good morning everybody and thanks for joining the call today we're pleased to be sharing your positive net income results a solid performance for the second quarter of twenty twenty one these results reflect a marked sequential increase in activity as for on upon are operating sanctions deliver to read to increase on average of more than fifty percent has announced yesterday we are racing or even a kinds range to two hundred two hundred and twenty five million dollars for twenty twenty one the to avoid any down or confusion we are not changing our free cash flow guides be confident in increasing our guidance range stems from are strong first half twenty twenty one two performance the increase in demand for energy demand as a result of the increasing number of covert vaccinations allowing for using of restrictions the opec class production discipline yielding supportive commodity prices in the positive trend in the global economic recovery conflict is returning to the energy services industry and especially to those companies that can help their customers with carbon reduction goals this combined with than expected renowned and or mobility solutions businesses and continued growth that our government businesses underpin our general expectation for increased activity levels over the next several years years now i'll focus my comments on our performance for the second quarter of twenty twenty one our current market outlook oh serious consolidated is the segment outlook for the third quarter twenty twenty one and oceaneering improved consolidated twenty twenty one i like including higher adjusted even gains range continued expectation degenerate precast well in excess of twenty twenty and reducing or net debt position after these comments i will and make some close your march before opening the call your questions now to our second quarter summary results we were very pleased with are adjusted operating results for the quarter we generated adjusted earnings before interest taxes depreciation and amortization or just it out of sixty point six million dollars exceeding consensus estimates during the second quarter we generated fifty point five million dollars in cash from operating activities and used twelve point six million for maidens and girls a capital expenditures resulting in free cash flow generation of thirty seven point nine million dollars in addition during the quarter we retired thirty point five million dollars of our twenty twenty four seen you know it's through open market repurchases in total our cash position increased by thirteen point three million dollars resulting in a cash balance of four hundred and fifty six million dollars at the end could second quarter liquidity remain strong with no borrowings against our five hundred million dollar revolving credit facility and no loan maturities until november of twenty twenty four the positive operating results were attributable to a seasonally influence fourteen percent sequential growth in revenue complemented by continued operating discipline and incremental efficiency gains as expected compared to the first quarter twenty twenty one or energy segments and aggregate posted double digit revenue growth and improved adjust operating results in the second quarter
spk_1: or aerospace and defense technologies are at tech segment delivered sequential growth and solid adjusted operating results
spk_2: sequentially consolidated adjusted operating results increased by nine point one million dollars with oliver operating segments generating positive adjusted operating results and a widow now let's look at our business operations by segment for the second quarter of twenty twenty one some see robotics or ssr adjusted operating income improved on nearly twenty percent higher revenues or ssr quarterly just that even a margin of thirty one percent was consistent with recent quarters as pricing remained stable operating activity in or ssr segment resulted in sequentially higher of the days and related tooling activity and higher survey activity the at his our revenue split was eighty percent from a remotely operated vehicles or rb business and twenty percent from our combined tooling and survey businesses compared to the seventy eight twenty two split respectably an immediate prior quarter
spk_1: as we forecast sequential early days on higher increased on standard seasonality and recovering answer activity with an increase in days for both girls support and vessel based services days on higher report in thousand and five as compared to eleven thousand and eight hundred and eighty seven during the first quarter or fleet use was fifty eight percent and girl support and forty two percent in vessel based services versus sixty four and thirty six percent respectively in the first quarter we maintain our fleet counted two hundred and fifty rv systems and our second quarter fleet utilization was sixty two percent up significantly from fifty three percent in the first quarter
spk_2: during the second quarter we retired fine of our conventional work class rv systems and replace them with three upgraded conventional work on systems and to israel where class rv systems that are currently engaged in renewables work average rv revenue per day on higher of eight thousand and fifty six dollars was two percent higher than average of the revenue per day on higher of seven thousand eight hundred and seventy four dollars achieved during the first quarter
spk_1: at the end of june we had our be contracts on seventy three of the one hundred and twenty six voting rights under contract or fifty eight percent market share which was flat with the quarter ending march thirty first twenty twenty one when we had rb contracts on seventy eight of the one hundred and thirty five voting rights under contract
spk_2: subject to quarterly inches we continue to expect our girl support marketshare to generally approximate sixty percent turning to manufactured products sequentially or second quarter twenty twenty one adjusted operating income decline on lower segment revenue adjusted operating income margin decrease the one percent in the second quarter and four percent in the first quarter of twenty twenty one as a little revenue decrease the ability to leverage our car space activity or mobility solutions are non energy business from a new to during the second quarter of twenty twenty one
spk_1: are manufactured products backlog on june thirtieth twenty twenty one was three hundred and fifty million dollars improving on our first quarter lot of two hundred and forty eight million dollars or book the bill ratio was one point three for the six months ended june thirty of twenty twenty one and was point eight for the trailing twelve months
spk_2: archer products group or lpg second quarter twenty twenty one adjusted operating income declined as compared to the first quarter of twenty twenty one despite a meaningful increase in revenue revenue benefited from ongoing field activities in several projects in angola and a seasonal increase in intervention maintenance repair or i'm artwork in the gulf of mexico the sequential decline in adjusted operating income margin from ten percent in the first quarter of twenty twenty one to seven percent in the second quarter of twenty twenty one is primarily due to online downtime and related costs associated with the angola rise well as like well intervention project which was partially offset my higher i am i can he's in the gulf of mexico oh integrity management and different solutions are i am the as sequential adjusted operating income was higher on and nineteen percent increase in revenue i are seasonal activity and the start of of several new multi your projects contributed to the revenue increase continuing efficiency improvements including utilization of feel personnel resulted in adjusted operating income large an increasing to seven percent in the second quarter of twenty twenty one from five percent in the first quarter of twenty twenty one
spk_1: or and second quarter twenty twenty one adjusted operating income improved from the first quarter twenty twenty one on a twenty percent increase in revenue
spk_2: adjusted operating income margin baking percent was better than forecast to the project mix and favorable rate based adjustments adjusted unallocated expenses of thirty point three million dollars was well it was slightly lower sequentially due to lower expensive curls related to incentive based compensation forfeitures
spk_1: now i'll address or i'll look for the third quarter of twenty twenty one
spk_3: we're projecting a decline in are consolidated adjusted operating results on moderately lower revenues with adjusted even in the range of fifty million to fifty five million dollars
spk_2: that commodity prices to support good activity levels in our energy segments particularly for short cycle work in the third quarter of twenty twenty one as compared to the second quarter we expect relatively flat adjusted operating profitability and our energy segments to be more than offset by lower than by law or and take it just an operating results and higher unallocated fences for more for a third quarter twenty twenty nine twenty twenty one operated by segment as compared to the second quarter of twenty twenty one
spk_1: or ssr we're projecting relatively flat activity and adjusted operating profitability and are of the survey and tooling businesses with similar are of utilization as compared and cycle quarter ssr just that even a margin is anticipated to remain consistent with the prior several quarters or manufactured products we anticipate relatively flat revenue and adjusted operating profitability or activity continues to look encouraging and our energy products businesses however activity continues to lag and or mobility solutions businesses bro pg we forecast lower revenue and relatively flat adjusted operating results we expect gulf of mexico i am or activity to remain at a relatively high seas a level through the third quarter the rise with a slight well intervention project and field support contract in angola are expected to continue for a portion of the third quarter
spk_2: or expectations relatively flat adjusted operating results takes into account the above described levels of activity and improved up time as compared to the second quarter
spk_1: bryan vs we expect both revenue and adjusted operating results to remain relatively consistent and the second quarter and with the second quarter of twenty twenty one
spk_2: for ad tech we forecast law revenue and lower adjusted operating results due to a change in project next as compared and second quarter unallocated expenses are expected to be in the mid thirty million dollar range due primarily to increase information technology infrastructure costs and normalized the curls or incentive based compensation directional a for a full year twenty twenty one operations by segment as compared to twenty twenty or ssr we expect adjusted operating results to improve on slightly higher revenues are videos on higher are projected to remain relatively flat your lawyer with minor shifts and geographic mixed results for tooling based services are i could be flat with activity level generally falling harvey days on higher survey results are expected to improve on growing international activity as as our forecasted adjusted even a margin is expected to remain relatively consistent with what we achieved and twenty twenty or are these we expect our twenty twenty one service mix to remain about the same as the twenty twenty mix of sixty two percent drill support and thirty eight percent nestled a services with higher vessel base percentages during the seasonally higher second and third quarters we estimate overall rv fleet utilization to be in the mid to high fifty percent range again with higher seasonal activity during the second or third quarters the container forecast that are marketshare for the girl support market will remain around sixty percent for the foreseeable future as of june thirtieth twenty twenty one there were approximately twenty eight opening are obese on board thirty seven drilling rigs the contract terms expiring by your and during the same period we expect thirty three of our of these and for
spk_1: reporting rigs to be to begin new contracts or manufactured products with forecast lower operating results due to the long cycle nature of this business and reduced customer capital commitments during twenty twenty operating results in twenty twenty benefited from contracts awarded and twenty nine team and allowed for beneficial cost absorption through the year and twenty twenty one we expected improved order intake seen during the first half of the or will drive increased activity in the fourth quarter or non energy mobility solutions businesses can sing continue to see reduced activity and order and take however confidence is building that we will see order intake improvement and twenty twenty two
spk_2: we forecast that are operating income margins will be in the low to mid single digit range for the year and the segment book to ratio will be in range of one point one to one point five for the for you oh pg we forecast a meaningful annual improvement in adjusted operating results on higher revenue good decimal utilization is expected to continue to the third quarter with operators remaining active with i am our work in the gulf of mexico however we all said it expected a typical seasonal decline in activity during the fourth quarter or expectations for utilization are driven by the commodity price environment which remain supported the short cycle call it work which is the majority of the work performed in the segment utilization of our vessels both on and chartered has improved to the point that may lead us to entering a spot charters on an as needed basis this year brian the as we forecast improve operating results on high revenue we expect second half twenty twenty one revenue to continue to benefit from incremental multiyear contract the began during the first half of twenty twenty one before cast and are adjusted operating income marginal continue to improve through the end of the year as we continue to drive more efficiency and this business adjusted operating margins are expected to average in the high single digit range from here brad heck we expect improved adjusted operating results on increase revenue with an annual adjusted operating margin approximately the same as that achieved in twenty twenty
spk_1: the continue to seek good growth opportunities and all three of our primary and business lines defense some see technologies that's a modification and repair services and space systems or estimated organic capital expenditure total for twenty twenty one remains between fifty and seventy million dollars is includes approximately thirty five to forty million dollars of maintenance capital expenditures and fifteen to thirty million dollars of girls capital expenditures he forecast or twenty twenty one income tax payments to be in the range of forty to forty five million
spk_2: dollars we continue to expect twenty eight million dollars in cares act tax refunds however the timing of or see of these payments weather and twenty twenty one or twenty twenty two is uncertain unallocated expenses are expected average in the mid thirty million dollar range per quarter for the second half of twenty twenty one now turning to our balance sheet arnett deposition improved during the second quarter is we repurchase thirty point five million dollars of our twenty twenty four him out and are able to build our cash balance by thirteen point three million dollars we had four hundred and fifty six million dollars of cash and cash equivalents of the end of the second quarter we continue to expect for casual generated in twenty twenty one will be in excess of that generated and twenty twenty we are well positioned to address the maturity of our twenty twenty four senior nodes and will continue to be opportunistic and pro active as to how and when we will address the remainder of this penny maturity and as a reminder we continue to have our five hundred million dollar under on or mobile available to us until november twenty twenty one and four hundred and fifty million dollars available until jan murray twenty twenty three
spk_1: in summary based on our first our financial performance and expectations for the second half of twenty twenty one we are raising our just city even a guidance to arrange of two hundred to two hundred and twenty five million dollars for the full year his confidence despite ongoing insert nice associated with coping nineteen stems from are strong first half twenty twenty one performance positive clients interactions support of oil price expectations and growing backlog
spk_2: as stated in my opening remarks conference is returning to the energy services industry and especially to those companies that can help their customers with carbon reduction goals this combined with an expected rebound in or mobility solutions businesses and continued growth and our government businesses underpin our general expectation for increased activity levels over the next several years
spk_0: our focus continues to be on generating positive free cash flow and twenty twenty one retaining in a tracking top talent addressing are twenty twenty four that maturity maintaining financial flexibility and growing our businesses by leveraging or technologies and capabilities into new markets we appreciate everyone's continued interest in oceaneering it will now be happy to take any questions you might have
spk_1: as a reminder if you like to ask a question press or than the number one on your telephone keeper
spk_4: i'll pass on his the mom of the company even a roster
spk_5: your first question and and in acting
spk_1: good morning i thanked her up on a color is always
spk_2: just like a high level
spk_1: active and fidelity
spk_2: and he going into twenty twenty two and i know it's it's to microscopic to look at your new seasonal or of utilization see you have more robotics activity fees like you take you que three that i would imagine that we have an uptrend and deepwater recounted only going into next year can you talk about hindering and what titan discussions you having with than good operators roaring their needs for or are these and and into the into next year just to italy and and what
spk_1: groom grab the might consider this point on the market romney yeah if and it does feel good know all the say that are you know we can we can feel it but there's no there there's no it's not like somebody dropped the start flag say that you know it's it's a it's a it's a gradual increase and we don't we don't we can't necessarily see a huge spike in the number of avoiding drilling rigs but i think they optimistic thing we see is that we're going through contract renewals were seen on your seen longer contracts again or seen people looking for you know for the for the one in the two years deals where we were going well by wow
spk_6: the past so i would say that at that's kind of the it's kind of the tone as that yes it's optimistic yes we see it going up but it's it's gonna be a ramp up it's not there's not going to be a big spikes
spk_2: okay that makes sense topic of probably any biased or month from got in the back at the year right then i think i think every earnings call for every company in the world this this quarter's asked about how you're coping with commands i would think that as being particularly relevant for attack
spk_7: have you seen have three sanguine outlook just couldn't
spk_2: he it's console storm clouds her who are high your interesting choose and margins actually going forward i think you know i think the steadiness of our contracts in the way that the attic work is contracted that's actually that's actually pretty well insulated from from a lot of those changes because it's been more predictable on i think we're eager to see it as as we start to contract new work on it was on these new orders come in and generally we've been we've been away help i will again well protected in the sense that went back to back with go with a large suppliers on the manufacture products and things like that but by i think you're gonna continue to see just like everybody else it also a great the great resignation we're going to we're all going to see pressure on labor costs and people cause that's going to be something that we have to watch
spk_0: and and we have to kind of single to our customers early but again it's it's happen to everybody so i know i don't think there's going to be a lot of pushback when they start to see that those costs go up
spk_1: guilt that the typical things we just were just watching a very carefully a fuel and and a lot of those things on the boats boats or that gets most of that gets passed long as we go so i don't see any big any be cliffs out there ah but but there is general there is generally arise like he said i'm cost almost everything is is going up slightly such as a matter of making sure that we we signal early to customers and rebuilding and the contracts after a backdrop as and over a think the him your next question comes on the line of mike's and the bella
spk_2: hey your money iran or am i i'm shocked and out the failure of medical elderly affecting about point point you on you eat cannot comment in a limit on their aus marking it just come around the capital budget next year new at as you say your name is there anything the would flag on that we should be aware of that that they require capital next year and and we think about cap acts of the medium term you know how can we be angry about that and that it and that a percentage of sales and then you know if in in the catholics catholic good that we're seeing that she heard that that sustainable board or that is it you know he think i moved up from there i didn't get to watch a few things like and it's a it's a great question it it as you have you expect that it's hard to answer or i'm back to think about things like he saw you saw the turnover in the rv that we talked about in this meeting you where where we're agreeing are of we're having capability to the to the conventional armies are also modifying some of them to work in the renewables market i'm in a long may continue that's that's good stuff it's really if contracts it's related to the shift to arms
spk_1: shift renewables so i think that's good i also like you know investment and things like freedom on some of that some of these changing market opportunities those are the the growth capital lower than i can i expect we'll keep spending on palm and then and then the things harder predict is either do we have to pick up assets for for a for contract or or something like that i think those are going to be if they come if those kind of the opportunities come they're going to come with you know up sign on revenue and upside on even are so i think probably he said as it is it sustainable
spk_8: not really of your girl and i'm but it is a if it can you can you keep it more like a percentage of revenue like you said if you're growing i would say yes thank you kind of your kind of regulating on it the right way
spk_1: parking at that at an aeroplane there
spk_2: and then you know your your luggage ratio down the one and a half times on you know you guys seem to be more competent that between or maturity with under control and know can any any point in path of a year for sharing i'm a nerd a target language that are you can share with us that that he knew i looking for at this point the cycle and then you're a and you get there and i imagine some some kind of growth cat bags could you to talk about other capital allocation priorities are you could have an internet here yeah i hope yeah i certainly think you obviously the lower their leverage ratio that look at wool yeah we are to company but i think it's it's getting it fine balance yeah be able to have some great cap ex and are planned for next year mean yes right he has a sustainable yelp guess if you're not growing but i think you know it's looking for those nice technologies looking for opportunities to find other ways we can grill in the adjacent markets from where we are today and and i think that's where we'd price been all along the cap eggs i don't think it's gonna be one that would change our overall leverage ratio significantly more we're at today though so i think in the one point five is certainly given our young guidance for free cash flow the here in the expectations year that is very reading through into next year and you should be reasonably well they're so that would get point towards a potential are lower leverage ratio
spk_0: and they might i just and you know when we talk about the capital
spk_9: they the our weekly being you know the rv fleet been fairly stable of the girls for market a stable that as that renewal and replacement that that and to go on but it off and in get on and on a good sign if if you start start to see you know other fleet that we would like to be operating people movers you know hospital a her age of these for hospitals and in manufacturing plants know those when and those a be the kinds of things that i would speak to as the good upside yeah and i think the other part of that leverage ratio really looking at is one of the runway you're one of the maturity really can do you know they were due tomorrow that had it would lead us to i be a widely different conclusion with the debt maturities into twenty four and twenty eight know that gives us calkins we had the going to deal like lanka
spk_2: it's like class in next question comes from the line of taylor's of i can learn and and now thanks for taking my class and i couldn't get to see the point when you on even a guy and range move higher
spk_9: and i guess my question is for the back half a year something to them better visibility towards the healthy easily adjustment and level of activity for i am i work in the gulf of mexico and get the thinking about that the high end and in a while and in that range i couldn't help but i'm praying for us knew what the primary through wild cards would be or or drivers on and get into the high and looking low and and of that rain of the and primarily
spk_2: the the level of i am are activity you're seeing our that you'd you will see how are under some other factors that make a play a role as well will you you got it and and remember i am are runs through both subzero biotics and became so it we see a longer season where there are more boats on the water more i'm are were you know that that seasonal seasonal was on activity kind of expanding out the a really strong to the third quarter even lady in the fourth quarter aren't you could see you see the i have a garden the guy is coming from both the subzero biotics business and okay eg so yeah let's get this that blatant about those businesses got it and i follow up you touch on the set up a bit and and i already but if i heard you correctly he added to her systems and and to and i'm just curious how conversations with customers and progress in around us and need new technology like interest in the freedom and liberty vehicles i sound like you can do these retrofit
spk_1: and pretty carefully efficient manner but just curious and while we should feed him for in terms of market adoption the certain technologies guy and i like the way you said that because number one there
spk_2: there is a retrofit component that but if i had a rank these the his first the man demanded is here now because that is that is really related shallow water work that's happening in the rebels business oh it is it it's for the center and that's why you see as talking more and more about adding those units the other side of it is the compatibility with with the guess it's with a lot of the support systems that we
spk_10: yeah the you know the on the older boarding system the though the winchester lowers into the water the control cabins everything else it's got a lot in common with our standard system so we can able to the ultimate recycling program we can we can you will is a lot of existing hardware to put an issue or system out which reduces the can't cabin cost
spk_2: and increases our speed to be able to deliver so that's that's good and it's the one kind of again front center
spk_0: liberty would be next and liberties the resident system again it's it's got a lot of similarities with the traditional of system i'm a little more complex intensive in the sense that it's got a battery pack and it's gonna bully the comes with it and some other things again probably young nearer to fruition because it's it's really a talk about technical ready to
spk_1: the latest closer to the things that are already been done today so we see the customers confidence with that kind of technology is up in front and center and then and then freedom again offers a lot of and a new capability and and with new capability the technical writing this is a is a little more challenging more things to prove more trials to run
spk_0: on but but the capability unlocks is is even bigger than perhaps the other two so i can put him there about it out tiny wise proven easy stuff on them on the is or a system that really makes a difference in the daily operating sort of doing things you didn't know that you could do with the freedom on the other end it all

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